What is Project Budget? Hidden Truth Revealed!


We treat software implementations like construction projects. The fact is that the software projects are much more dynamic and fluid.

There are many aspects. But, let us consider Project Budget, for example. Of course, we understand the Project Budget as the estimated cost for software implementation. It is not the complete truth, however!

As the Project Budget is the expectation set to deliver the project under given assumptions and constraints.

You may be thinking, what difference does it make?

Consider the following scenarios. After reading, you will start to see software implementation Project Budgets differently:

Scenario 1: Project Budget Approach: The Vendor Added Decent Contingency

Consider you want to implement Enterprise software (ERP/CRM) for your business. I am a well-known software vendor in the town. My team estimated $500K, and I added a contingency of $250K and proposed a budget for $750K (Time and Material). You accepted the proposal. I delivered the project at $700K. As a sponsor, you are happy as I have delivered the project under the budget. We celebrated our win together. I talked about how effectively we managed your project. But, the reality is that my company has overcharged $200K more than the estimated amount.

Do you see my point? Assuming that estimates were accurate and no more scope is added, my firm has spent $200K over. You still are celebrating?

So, what exactly is the budget jargon? It is nothing more than the expectation I have set initially with you. The initial anchor that is all!

Scenario 2: Project Budget Approach: The Vendor Challenged the team to be more productive

Consider, you want to implement Enterprise software (ERP/CRM) for your business. My team estimated $500K. I challenged my team on excessive estimates. I proposed the budget for $400K (Time and Material). You accepted the funding. As it turns out, I need a $50K budget to complete the project. I requested an additional budget with justification for further allocation. You get upset as this is another request over and above the original budget of $400K. You hesitantly approved the budget. I completed the project. You feel like you have overpaid $50K and didn’t like the experience of dealing with my firm.

Compared with scenario 1, you saved $250K ($700K – $450K), but you didn’t like the experience.


So, as a project sponsor, understand that the project budgets are only expectation settings. If you are dealing with the Board, you do the same. So, you are setting the budget expectations with your Board as well.

Understand this game of expectation setting and play it nicely and fairly!

Project budget

You must appreciate that we can solve the same problem in many different ways in the software world. So, it is vital to work with the vendors and delivery team with an open mind. Allow them to propose other options along with the assumptions and constraints. Then, constructively, make decisions to optimise your investment within the project. Never hang up on the number (Project Budget). Instead, understand what you are getting with the given number? How will it change your business? Finally, focus on the outcomes of the software implementation.

Good luck!